Approaching the
eve of February a number of markets appear to be poised at key levels of
decision, possibly major inflexion points.
With markets assessing the impact that our new POTUS will have – and
still collectively scratching their heads – perhaps the more fundamental and
immediate matter of interest rate differentials will dominate thinking this
week with BoJ, FOMC and BoE all up? We
will briefly examine the weekly charts for upcoming possibilities. To summarise: it is all about the USD.
FX:
DXY, following its
ripsnorter rally after the US election, lost momentum and is currently sat
on a key level of support at 100.50.
This level, that stretches back to March 2015, is ostensibly the
inflexion point for a possible renewed leg up (reflation, closing of US output
gap, increasingly hawkish Fed etc., higher UST yields..etc.). Or has the USD rally run out of steam with
the top in place? With the weekly candle
indicating a “doji” precisely on the 100.50 level the USD bulls and bears are poised
to reveal their cards imminently. It cannot be understated how relevant the
strength and direction of the USD is with respect to global markets at present. A grand inflexion point?
EURUSD tells a
similar story with a neat weekly doji posted right on trend line support dating
back to March 2015, with a post election break out currently being
retested. Failure here sees will see us
head back to the 1.0350-1.0450 area.
Across most JPY
pairs the Yen displays renewed weakness, particularly AUDJPY, NZDJPY, CADJPY,
GBPJPY, with USDJPY also possibly poised for another leg up. All eyes wil be on BoJ / FOMC for monetary
policy clues.
GBP is showing renewed positive momentum. The cable has enjoyed a decent recovery since PM May’s speech shook many shorts out of the market. Bears will be eyeing 1.2740-1.2800 as their next possible level of interest.
Traders will be
closely examining price action on the commodity complex currencies too
following their recent rallies. AUDUSD, USDCAD and NZDUSD are all at key
technical levels. I favour a short on
AUDUSD should we fail to break through 0.7600 which appears to be a key level
from several aspects, including a possible neckline on a 2 year head &
shoulders bottom. The Aussie has already
shown signs of momentum loss and so failure to break through this level could
see some decent selling.
Similarly, NZDUSD is retesting a 15 month rising wedge pattern from which it broke out down from in November 2016. Following its spritely 5 week rally we should be scrutinising price action around the 0.7300 level for signs of weakness and the possible opportunity of a short.
The minor FX
pair’s weekly charts continue to confirm Yen weakness with all pairs showing
continuation patterns. GBPJPY impressive recovery continues, I expect further strength to the upside here. EURAUD and EURNZD
deserve close monitoring for possible breakouts to the down side.
Equities:
All 4 major US
indices currently look very bullish with further gains most likely. This, for me, adds to the balance of
probabilities to the ‘near term stronger USD’ thesis. However, the ‘risk on’ sentiment could
evaporate in a flash in this market, with any number of possible surprises,
grey swans or white rabbits appearing suddenly and dramatically. Expect the unexpected in this age of
absurdity!
My preferred chart morphology on the S&Ps, taking the birds eye vista, is for a breakout down from a massive 10 year rising wedge pattern. Should this indeed pan out, this classical chart pattern would project a target of 1,200. Food for thought...However, in the near term, there is nothing but bullish prognosis to speak of, irrespective of how dizzying these heights may seem to some.
Commodities:
Two interesting
charts in commodities space right now – particularly when taken in the context
of the USD’s current inflexion point – are Silver and WTI. It is no coincidence that both of these
markets are also at key levels and are poised for a breakout move in either
direction.
Silver has been in
a down channel since printing its 2016 high in July. However, recent strength is illustrated by a
possible major 3-month head & shoulders bottom. The neckline coincides perfectly with the
boundary line to the aforementioned down channel, at a key horizontal
resistance level too. 17.20 is silver’s
inflexion point, illustrated quite beautifully by its chart. I anticipate a decent
move from here, with the lead taken from the USD.
And finally,
inspection of the weekly WTI chart shows 7 weeks of indecision with doji’s and
spinning tops decorating the neckline of possible head and shoulders bottom
stretching back to October 2015 around the 52 – 54 price range. WTI futures, with Commitment of Traders
reports showing near record net speculative longs, are in desperate need of
some positive fundamental news to prevent a failure here. I would not be surpised to see prices drop
sharply back down into the 40s. Of
course, a stirring USD will not help WTI longs’ cause.
One last
word: February brings with it two
eclipses. What is the relevance of that,
I hear you cry! Perhaps nothing. Have a look at my previous blog if your interested is piqued…
Good wishes &
good luck.
